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Has The Inclusion Of Forward-Looking Statements In Monetary Policy Communications Made The Bank Of Canada More Transparent?

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Executive Summary

To investigate the extent to which the transparency of the Bank of Canada's monetary policy has improved, the authors examine empirically - over the period 30 October 2000 to 31 May 2007 - the reaction of Canadian financial markets to official Bank communications, and in particular their reaction to the recent inclusion of forward-looking policy-rate guidance in these communications. The authors find evidence that Fixed Announcement Date (FAD) press releases, and, to a lesser extent, speeches by Governing Council members, significantly affect near-term interest rate expectations, indicating that central bank communication conveys important information to market participants.

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